Time Value of Money for Effective Interest Rate- myassignmenthelp

Question: Discuss about theTime Value of Money for Effective Interest Rate. Answer: The formula that is used for calculating the effective interest rate is given below: Effective interest rate= (1+r/m)m -1 R is the rate of interest. M is the number of times per year. Statement showing calculation of effective interest rate Account Annual Interest Rate (R ) Compounded period Times Per Year (M) Effective Interest rate A 10% Annually 1 10% B 12% Monthly 12 13% C 12% Bimester 6 13% D 8% Quarterly 4 8% E 10% Semi-annually 2 10% F 12% Quarterly 4 13% The future value of the money is calculated using the formula: FV= Present value (1+rate of interest)^number of times Statement showing calculation of compounded amount Account Amount Deposited (EUROS) Annual Interest Rate (R ) Deposit period Number of payment period Compounded Amount A 1,000 10% 10 10 $2,593.74 B 95,000 12% 1 12 $370,117.72 C 8,000 12% 2 12 $31,167.81 D 120,000 8% 2 8 $222,111.63 E 30,000 10% 4 8 $64,307.66 F 15,000 12% 3 12 $58,439.64 Two banks are providing loan the bank that will provide loan at minimum interest should be selected. Therefore, in order to make the decision effective interest rate are calculated below. Statement showing calculation of effective interest rate Particulars Finance company Bank Rate of interest 12% 13% Compounding 12 1 Effective interest rate 13% 13% The effective rate of interest for both the loan is 13%. Therefore, it can be said that any one of the option can be selected. Time year Amount Received (Euros) Present value 11 10000 $5,267.88 12 10000 $4,969.69 13 10000 $4,688.39 14 10000 $4,423.01 15 30000 $15,803.63 Amount that is deposited $35,152.59 The total amount that is required to be deposited today is $35152.59. The formula for calculating the annual loan payment is: Annual payment= (r(P))/ (1-(1+r)-n) Calculation of equated Annual Installment Particulars Amount (Euros) Loan Amount 25000 Interest rate 12% Time period 5 Equated Annual Installment 6935.24 Statement showing future value of an annuity Particulars Compounded Annually Compounded semi annually Annuity amount 1000 1000 Time 10 10 Number of period 10 20 rate 10% 10% Future value of Annuity $15,937.42 $57,275.00 Bibliography Kashyap, Ankita. "Capital Allocating Decisions: Time Value of Money."Asian Journal of Management 5.1 (2014): 106-110. Mpakaniye, Jean Paul. "Time Value of Money." (2014).